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Thursday, October 07, 2004

REFLECTIONS ON THE TOPIC: THE TWO TIERS OF OIL SECURITY

While the term energy security is used is a variety of (often misleading) ways, there are essentially two tiers of oil or energy security analysis which sometimes intertwine. The first tier of analysis concerns the security issues driving day to day supply/demand conditions. The second tier of analysis addresses longer-term geostrategic issues.


Many different factors dive the day to day supply and demand conditions and hence the price of oil. Those recently have been the ebb and flow of violence -and now the threat of strike- in Nigeria, the unfolding Yukos drama, sporadic attacks on the oil infrastructure in Iraq, low-level violence in Saudi Arabia, and of course hurricane Ivan. Both the price of oil and the events themselves bear upon the energy security of suppliers, demanders, and the world market generally.

The second tier takes a state-centric as opposed to a world market view. With such an unequal distribution of the both supply and demand of oil, each country faces a unique energy-security situation.

Countries like South Korea, France, Germany and Japan fall on one end of the spectrum. These nations are among the most economically successful in the word, yet supply 5% or less of their own oil. They are utterly dependent on imported oil for continued economic growth. While states like these can mitigate their vulnerability to a certain extent by employing alternative energy sources, that option is limited: transportation fuels, which make up a large and quickly growing proportion of energy demand, cannot effectively be supplied by energy alternatives. Alternative fuels often are also politically unpopular. Germany, for example, has committed to entirely shutting down its widely unpopular nuclear power plants by 2025.

The small, oil-rich countries of the Middle-East, of course, fall on the other end of the energy geo-strategic spectrum, supplying much more oil than they demand. Even Saudi Arabia and Iran, both of which are among the world's top 20 consumers of oil, produce 2.5 and 6 times as much oil respectively as they consume. Their energy security strategy thus looks much different. First, net suppliers have an interest in keeping markets open and profits maximized, i.e. as high a price as possible without hindering world economic growth and thus demand. Clearly that's the logic behind the erstwhile OPEC cartel. Second, these countries need to insure their own security Vis a Vis potential aggressors, most often with little in the way of national armies. Sitting atop pots of black gold, these countries make attractive targets of aggression, as Kuwait found out in 1990. Third, these countries are often reliant on foreign companies for development of their oil resources. They must plan their international allies accordingly.

However, the most interesting countries from a geo-strategic point of view are three of the traditional great powers, China, Russia, and the United States. While neither Japan nor South Korea -nor to a large extent Germany and France- don't really possess the means to develop a proactive or aggressive energy security strategy, China, Russia, and the United States do, although each faces a very different energy security horizon.

Both China and the United States produce large amounts of oil, but they consume much more oil than they produce. However, because they are among the world's dominant military -not to mention nuclear- powers, they have the ability to undertake an aggressive energy security policies. The United States has done this by being the defacto protector of the world's largest stash of oil, that contained in and around the Persian Gulf. It also imports much of its oil from the Americas -primarily Mexico and Canada- where military threats are much diminished by their proximity to the United States.

China, for its part has only recently become a net oil consumer, although its year on year demand increases are the world's largest. As it passed from the ranks of net supplier to net consumer in the 1990's, China was forced, however grudgingly, to make its energy security policy a priority. It has sought to reduce its dependence on Persian Gulf oil -and thereby the United States- and has looked toward Russia and Caspian Sea Basin resources as possible alternatives. Africa has also been the focus of Chinese attention, as it has taken advantage of African suppliers and also sought to secure upstream resources in Africa for future development.

Russia, finally, is on the other end of the supply/demand spectrum, having some of the world's largest crude reserves. As a net oil supplier, its interests are in some ways similar to those of the world's smaller top oil producers -i.e., securing overseas markets, stable prices, foreign investment in its energy sector, etc. However, it has the political and military power necessary actively or aggressively to pursue these and other energy security aims, most importantly to protect itself from foreign aggression, and to some extent choose its markets.

While this blog has been much about day to day security events -for they are both interesting and important- I hope also to recognize that these events are data points in the large trajectories of the world's various and interacting energy security policies. Only then can some deeper understanding of the relationship between international security and oil be achieved.

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